Whilst it is possible to involve your children in your business, this is a strategy that should be approached with caution.
Giving shares in your company to minor children is perfectly possible, but any dividends that you pay to under eighteens will be treated as if the income belonged to the relevant parent. HMRC would invoke the settlements legislation to do this. You could employ an under eighteen-year-old son or daughter, but you will need to be mindful of commercial considerations. These would include:
- You would have to observe the minimum wage regulations.
- The hourly rate paid should be a commercial rate for work undertaken. It would be hard to justify paying your children £50 an hour to deliver leaflets.
Once your child reaches the age of eighteen more opportunities arise: the possibility of issuing shares and paying dividends, if your business is a company, may be possible. At present, this is a useful option, as the first £5,000 of dividend income is completely tax free. If appropriate, this may be an attractive way to provide a tax-free allowance to reduce the need to extend student debt for example.
If you operate as a self-employed trader, you will not be able to issue shares, but you could employ your son or daughter if you are mindful of the commercial considerations listed above.
However, whether self-employed or incorporated. there are issues that should be resolved before transferring or issuing shares, or employing offspring, not least, that you may be diluting your ownership of your business. We can help. Planning in this regard is best done prior to making any decisions to involve children in this way.
